Worried about what your financial situation will look like a year or even a few months from now? With all the worries about economic growth, it is reasonable to worry about a possible recession.
But the key is to start preparing now so that you’re in the best position with your money, should a recession strike in the next six to 12 months.
As a Ph.D. in Business. and fintech entrepreneur who runs a multi-million dollar business, I urge everyone I meet to remember that a recession can present opportunities to put their finances in order.
To increase your chances of surviving an economic downturn, here are my top 18 recession currency rules:
1. Build up a 12-24 month emergency fund. In a stable economy, experts recommend saving for three to six months of living expenses.
But Catherine Valega, CFP and wealth consultant, suggests workers aim for 12 to 24 months in case they are made redundant.
“I tend to be more conservative than many because I’ve seen three to six months of emergency spending, and I don’t think that’s enough,” she told CNBC in May.
2. Minimize high interest debt. See if you can negotiate your credit card interest rates by calling your card issuer. Think about how you can make a strong case – maybe you’ve been with them a long time or have a good history of paying on time.
If a rate cut isn’t an option, consider moving your debt to a lower interest rate card. Or you can consolidate your debt to lower your monthly payments and help free up capital that may be needed in an emergency.
3. Prepare to borrow money. During a recession, many people need to borrow money to get through tough times – and that’s okay. But when interest rates are high, lenders will scrutinize your credit score, which will make it more difficult, or even more expensive, to get approved for a loan.
So create a plan to increase your credit score. Making payments on time and keeping balances low are the most important factors when it comes to building credit.
4. Keep your credit accounts active. Now is not the time to panic and cancel your credit cards. The age of your accounts is a factor in your credit score. Even if you’re transferring balances, keep your credit cards open.
According to Equifax, credit scores of 580 to 669 are considered fair; 670 to 739 are considered good; 740 to 799 are considered very good; and 800 and above are considered excellent.
5. If your mortgage is coming due, renegotiate it now. The average 30-year fixed mortgage has almost doubled since last year. No one knows for sure if this is the highest rate that will go up, but locking in a lower rate now can protect you if they do.
6. If you have low interest mortgage debt, stay put. Many people believe that paying down debt during a recession is a good idea. But I don’t recommend that. It may be better to make minimum payments and keep the money available.
Why? Because if the worst happens and you end up losing a source of income, the money you’ve saved can help you recoup expenses until you regain financial stability.
7. Buy in bulk if you can afford it. Anything that is a cost saver today that you need and use in the future will save you even more money later, if inflation continues.
Non-perishable staples like toilet paper, toothpaste, shampoos and soaps, or even canned foods make great purchases in bulk.
8. Opt for frozen products. If you always buy fresh fruits and vegetables, consider buying frozen ones. Often the products found in the freezer section are just as healthy, keep longer and cost much less.
9. Buy generic brands. Items such as garbage bags, light bulbs, paper, makeup, shampoos, pet food, canned food, and other groceries can often be purchased inexpensively and usually provide virtually the same product.
10. Consider the cost of gas. If you shop or run errands, calculate how you can undertake multiple tasks in one outing instead of multiple trips. If there’s free delivery on a product you purchase, choose to order it instead of driving to pick it up.
11. Build your emergency fund before investing in the dip. Don’t start investing for the long term until your emergency fund is established. A loss of income can push you into debt, and high-interest debt can hurt investment returns.
12. Invest in recession proof industries. The fear of buying the wrong stocks can be alleviated by investing in established and well-known companies. Investors may want to consider sectors that generally do well during economic downturns, such as consumer staples, utilities, and healthcare.
In June, CNBC’s Jim Cramer told “Mad Money” viewers that during a recession his advice was to buy “tangible” stocks: “You want to own companies that do real things and do real things and make a profit in the process.”
In another segment, he said “food stocks can become recession-proof safe havens.” Some of his favorites, he added, are General Mills, Kellogg and Campbell Soup.
13. Look for negative correlations. Diversify your portfolio by buying asset classes that have low or negative correlations in pairs. This can help minimize the amount of money you lose in the short term if stocks continue to fall because one asset class will tend to rise in value while the other falls.
14. If you’re considering a career change, research recession proof positions. While no job is completely secure in a recession, some jobs like those in essential services offer more security.
Think: medicine, teaching, law, accounting, public safety, utilities, waste management and other jobs that make society work.
15. Create additional revenue streams. One of the biggest risks consumers face during a recession is loss of income. Cushion this risk by accepting extra work. You can find a second hourly job with flexible hours (for example, bartending or waiting tables, two professions with a lot of job openings at the moment).
Or you can start a side hustle through gig apps like Uber, TaskRabbit, Instacart, or Rover. Renting out your property (or even a vacant room in your home), either to a tenant or through a vacation agency, is another way to generate a predictable income stream.
16. Resell your stuff. Second-hand sellers thrived during the Great Recession. Sell items you no longer use to thrift stores. To avoid middlemen, you can post items online to commercial marketplaces such as Poshmark, eBay, or Kijiji.
17. Increase your market value. Upgrading your skills or upgrading your education will make you more marketable during a tight job market. Sign up for classes, attend workshops, volunteer – the soft and hard skills you learn will add a lot of shine to your resume.
18. Don’t panic — recessions don’t last forever. If you lose your job or your income changes, you may have to cut your budget drastically or spend your emergency fund, but you can always get it back later. Since 1900, the average recession has lasted about 15 months.
Anne Kaplan is the founder and CEO of iFinance, the parent company of Medicard, Petcard, Dentalcard, iFinance Tech and iFinance Home Improvement. She holds a Ph.D. in finance and an MBA from the Rotman School of Management at the University of Toronto.